In the statement release Monday afternoon, Microsoft said the combination of Microsoft and Yahoo would create a more effective force in the marketplaces Google dominates: Internet search and online advertising. (Read the text of Microsoft's statement.)
"The Yahoo response does not change our belief in the strategic and financial merits of our proposal. As we have said previously, Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo's shareholders are provided with the opportunity to realize the value inherent in our proposal."
Yahoo said Monday that Microsoft's " unsolicited proposal substantially undervalues the company."
On 1 February, Microsoft made a bid to purchase Yahoo for $44.6 billion, which represented a 62% increase over the Yahoo stock price on that day, which was $19.18. Last week, the offer helped pushed Yahoo stock to $29.20.
Analysts have been speculating that Microsoft may raise its offer by $5 billion to $12 billion. Yahoo is said to be seeking about $40 per share, which would make the offer $56 billion.
Microsoft also could push for a hostile takeover in bypassing Yahoo's board and going directly to the stockholders, but that avenue presents risks on many fronts including having to oust the entire 10-person Yahoo board.
Rumors also are circulating that Time Warner division AOL could enter the picture and team up with Yahoo, although analysts question whether such a merger would be a strong a competitor to Google.
Google itself has also entered the picture offering to help Yahoo avert a takeover and remain an independent company.
Microsoft is seeking to accelerate its move into search, advertising and services delivery before Google builds an insurmountable lead.
Both Microsoft and Yahoo are playing from behind in the search game against Google, whose US internet search market share increased from 51.7% in the fourth quarter of 2006 to 58.4% during the same quarter in 2007, according to comScore. In that same period, Yahoo declined from 27.6% to 22.9%, and Microsoft from 10.4% to 9.8%.
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